Yet another stupid number... There's a whole ton of threads talking about the reasons it's wrong to use notional quantities when talking about derivatives. It's completely meaningless. As to the Harvard example, that's also total bollox. Harvard's swaps were hedging its floating rate issuance, which is what many other entities do. They lost on the hedge, but their losses were offset by the improvement in their funding costs. The moral of the story is that journalists use large numbers, because they get paid more if they shock. Take the numbers you see with a grain of salt.
I dont think they can come up with a way to regulate this complex structure they call derivatives. The derivative market is so massive that its only going to grow greater and greater if something isn't done soon. A collapse in this market and their isn't enough money to print around the world that could save this collapse.
What's so wrong with only a 30% loss in Harvard's endowment? The broader markets are still down 30% from the highs. Larry Summers may be evil and incompetent, for a litany of reasons, but being down 30% isn't exactly something to be ashamed of these days. And what does Harvard need a bigger science program for anyways? Even MIT grads are having trouble finding jobs these days, nevermind science grads from most other universities.
"To cancel all 10 derivative contracts Saint-Etienne currently holds would cost the town approximately $135 million, more than six times the amount initially borrowed, largely because no bank or institutional investor would want to purchase contracts that are now on the losing side of the bet." lol..? or
Is this exactly why we're at 0% rate? Maybe we should consider the possibility that rate would stay at zero indefinitely.
Some interesting points from the article above. To comprehend the relative magnitude of derivative contracts globally, the CIA Factbook estimates the 2009 Gross Domestic Product, or GDP, of the world was just under $60 trillion. Derivative contracts, therefore, have now reach a level 10 times world GDP, meaning even a 10 percent default in derivatives would equal world GDP. The hedge fund and derivatives markets are so highly complex and technical that even many top economists and investment banking professionals don't fully understand them. Moreover, both the hedge fund and derivatives markets are almost totally unregulated, either by the U.S. government or by any other government worldwide. The Bank of International Settlements, or BIS, in Basel, Switzerland, makes no estimate of how much of the $604 trillion in outstanding derivative contracts are today vulnerable to collapse. Losses in derivatives played a major role in the bankruptcies of both AIG and Bear Stearns.